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Stephen Roach is a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia. NEW HAVEN – China’s economy is slowing. This is no surprise for an export-led economy dependent on faltering global demand. But China’s looming slowdown is likely to be both manageable and welcome. Fears of a hard landing are overblown.
To be sure, the economic data have softened. Purchasing managers’ indices are now threatening the “50” threshold, which has long been associated with the break-even point between expansion and contraction. Similar downtrends are evident in a broad array of leading indicators, ranging from consumer expectations, money supply, and the stock market, to steel production, industrial product sales, and newly started construction.
But this is not 2008. Back then, global commerce was collapsing, presaging a 10.7% drop in the volume of world trade in 2009 – the sharpest annual contraction since the 1930s. In response, China’s export performance swung from 26% annual growth in July 2008 to a 27% contraction by February 2009. Sequential GDP growth slowed to a low single-digit pace – a virtual standstill by Chinese standards. And more than 20 million migrant workers reportedly lost their jobs in export-led Guangdong province. By late 2008, China was in the throes of the functional equivalent of a full-blown recession.
Thanks to a massive fiscal stimulus, China veered away from the abyss in early 2009. But it paid a price for this bank-funded investment boom. Local governments’ indebtedness soared, and fixed investment surged toward an unprecedented 50% of GDP. Fears surfaced of another banking crisis, the imminent collapse of a monstrous property bubble, and runaway inflation. Add a wrenching European crisis to the equation, and a replay of 2008 no longer seemed far-fetched.
While there is a kernel of truth to each of these China-specific concerns, they do not by themselves imply a hard landing. Nonperforming loans will undoubtedly increase in response to the banking sector’s exposure to some $1.7 trillion of local-government debt, much of which was incurred during the stimulus of 2008-2009. But the feared deterioration in loan quality is exaggerated.
The reason: With rural-urban migration projected to exceed 310 million people over the next 20 years, there is reason to believe that much of the apparent overhang of housing supply will be steadily absorbed. Like Shanghai Pudong in the late 1990’s, today’s Chinese “ghost cities” are likely to be teaming urban centers in the not-so-distant future. Meanwhile, deposit-rich Chinese banks have ample liquidity to absorb potential losses; the system-wide loan-to-deposit ratio is only about 65% – well below earlier pre-crisis levels that were typically closer to 120%, according to a recent analysis by the Xerion team of Perella Weinberg Partners.
Nor is the Chinese property market about to implode. Yes, a building boom and speculative excesses have occurred. But a year and a half ago, the government moved aggressively to dampen multiple property purchases – raising down payments to 50% for second homes and to 100% for third homes. While that halted much speculative activity, house prices have remained at elevated levels – underscoring lingering affordability issues for China’s emerging middle class.
Notwithstanding that problem, major imbalances in Chinese property markets should prove to be the exception over the next two decades. While there could be supply-demand mismatches in any given year, with an average of roughly 15 million citizens a year slated to move from the countryside to newly urbanized areas, demand should rise to meet supply.
Inflation is always a serious risk in China – especially with headline increases in the country’s Consumer Price Index surging through the 6% threshold this summer. The government has responded forcefully on four fronts.
First, food inflation, which accounts for about half the recent run-up in overall prices, has been addressed by administrative measures aimed at cutting fertilizer costs and removing bottlenecks to increased supplies of pork, cooking oil, and vegetables. Second, in an effort to curtail excess bank lending, reserve ratios were increased nine times in the past 11 months. Third, the rate of currency appreciation has edged up. Finally – and perhaps most importantly – the People’s Bank of China has raised its benchmark policy rate five times since October 2010. At 6.5%, the one-year lending rate is now 0.3% above August’s headline inflation rate.
If food inflation recedes further, and the headline inflation rate starts to converge on the 3% core (non-food) rate, the result will be the equivalent of "passive monetary tightening" in real (inflation-adjusted) terms – precisely what the inflation-prone Chinese economy needs.
All of this underscores a potential silver lining. An increasingly unbalanced Chinese economy cannot afford persistent 10% GDP growth. Provided that there is no recurrence of the severe external demand shock of 2008 – a likely outcome unless Europe implodes – there is good reason to hope for a soft landing to around 8% GDP growth. A downshift to this more sustainable pace would provide welcome relief for an economy long plagued by excess resource consumption, labor-market bottlenecks, excess liquidity, a large buildup of foreign-exchange reserves, and mounting inflationary pressures.
For China, there is a deeper meaning to recent global developments. A second major warning shot in three years has been fired at this export-led economy. First, the United States, and now Europe – China's two largest export markets are in serious trouble and can no longer be counted on as reliable, sustainable sources of external demand. As a result, there are now major questions about the sustenance of China's long powerful export-led growth model.
Accordingly, China has no choice but to move quickly to implement the pro-consumption initiatives of its recently enacted 12th Five-Year Plan. Strategic transition is what modern China is all about. That’s what happened 30 years ago, when economic reform began. And it needs to happen again today. For China, a soft landing will provide a window of opportunity to press ahead with the formidable task of increasingly urgent economic rebalancing.
Stephen S. Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia.View the original article here
When fashion week in New York City rolls around it's never hard to spot the models who are in for the event.
They tower over the rest of us, their skin is perfect, and even in sweatpants they look put together.
It's a comfort to know they're not perfect.
Yes, even models fall.
The combination of the highest shoes you've ever seen and a freshly waxed runway makes it difficult to stand- even famous supermodels like Naomi Campbell and Alexandra Tomlinson have had their less-than-graceful catwalk moments.
In honor of fashion week, we took a look at some big spills on recent runways.
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No leader can be blamed for thinking how wonderful a week would be if it didn't have any meetings — or any "I-just-need-a-minute" conversations in the hall or interruptions of any kind — basically, a week with a to-do list and without people. Wouldn't that be a productive week?
Not really, says Douglas Conant, former president and CEO of the Campbell Soup Company. All those meetings, chats, and interruptions are vital points of contact that leaders can use to get an awful lot of work done.
In his book TouchPoints: Creating Powerful Leadership Connections in the Smallest of Moments, Conant and his cowriter, Mette Norgaard, assert that every face-to-face conversation can promote a company's strategies and values and increase a leader's impact. Leaders can leverage each of those interactions to bolster employee engagement, set priorities, and get tasks moving.
In the following conversation, Conant explains touchpoints, how to manage them and get the most out of them, what to listen for, and how to engineer them. All this is worth the effort, according to Conant. Handling touchpoints the right way not only makes meetings and days more productive, it makes leaders more effective too.
GMJ: What is a "touchpoint"?
Douglas Conant: Touchpoints are everyday encounters in which there's an issue, there's you, and there's another person or another group of people. They are not necessarily planned meetings. [Gloria Mark, a researcher at] The University of California, Irvine did a study and found that most people only work for eleven minutes before someone interrupts them. And twice in those eleven minutes, they would interrupt themselves, like thinking, "Maybe I should check on this" or "Maybe I should check on that." So when you get down to the math of it, on average, people have four minutes of uninterrupted time at a stretch to work on things. They're always looking for time to do their real work around that because the reality is, if it's four minutes today, it's going to be three and a half minutes tomorrow.
As Mette and I deeply immersed ourselves in this subject, we realized that the real work for leaders is in dealing with all those encounters in a productive way. How effective are you in those minutes with those interruptions, those phone calls, and in those conversations with someone in the hall who's been meaning to talk to you or with someone you bump into on the plant floor who has a question for you? That's the real work of leadership. What you make out of all those small everyday encounters defines your impact on your organization and ultimately, your reputation.
For too long, people have thought about leadership as this big aspirational idea -- to become a leader, you've got to go to business school and you've got to read all these books. What we've found is that effective leaders are highly effective in these hundreds of touchpoints every day. That's where they have a chance to bring their strategies and their values to life in personally relevant ways.
GMJ: So the difference between a touchpoint and an interruption is the leader's perspective?
Conant: It is. Every interruption can be a touchpoint if you do three things in response to addressing an issue: listen, frame, and advance. We call it the touchpoint triad. Listen to the interruption, frame the issue in some way, and advance the conversation. That's how you handle a touchpoint -- and you can do it in twenty seconds. It's all about being very alert to these conversations and making the most of them instead of dismissing them so you can get back to work.
GMJ: Can you give me an example of how this works in the real world?
Conant: Let's say you encounter someone in the hall, and he has something to say to you. The first thing to do is listen intently. Then you make sure you understand whose issue it is. Is it his issue, is it your issue, or is it an issue the two of you share?
After you've listened intently for twenty seconds or however long it takes, frame the issue. You could say something like, "OK, as I understand it, this is what you're saying, and this is the situation we're facing." He confirms that, and then you find a way to advance the issue. If he needs your approval for something, you can say, "Go ahead" or "Wait a minute, please check with so and so." If it's his issue and he's just looking for your advice, you can offer some advice. But in every touchpoint, you want to advance things forward in some meaningful way.
GMJ: Listening, framing, and advancing sounds like it takes a lot of analytical energy and willingness to help. How do you find the energy and stay focused?
Conant: We recommend that you go into every interaction with a mindset of how you can help. So after you listen, frame, and advance, at some point, ask yourself or the other person how that interaction went. Is there anything more you can do for him? It's that simple.
If you want people to be engaged in your company, you've got to be very engaged in those interactions. I would suggest it's better to bring energy to it than not. I find that when I practice this -- listen, frame, advance -- I look at it as an opportunity to be helpful every time I talk to someone. It gives me energy to get into the interaction.
GMJ: How does this affect productivity and efficiency?
Conant: To answer that, let me start with the four A's that we suggest people bring to these interactions. You need to be alert, abundant, authentic, and adaptable. Alert means you pay attention. Abundant means thinking in terms of possibilities, not limitations. To be authentic, you bring your whole self to these interactions. And being adaptable means bringing the necessary skill to the situation to be directive, consultative, or inspiring.
As we've been working on this concept for the better part of the last four and a half years, we've found that people who engage in this practice [intentionally] tend to be out in front of problems and in a more proactive position. Because workers become comfortable with leaders who do this, workers search them out earlier on an issue. Typically, [issues] are managed efficiently before they become big problems -- they're managed when they're smaller ones.
Now if you're not authentically engaged in the interaction or you're not really trying to help move an issue forward, you're going to find pretty quickly that employee engagement is going to slip. But if you commit to building a high-engagement culture, you have to commit to building capacity around managing touchpoints effectively.
GMJ: Right, but there are people who can take fifteen minutes to clear their throats. Can you listen, frame, and advance every touchpoint while still moving people to their point?
Conant: Yes. It's helped me over the years because I want to honor people and give them an opportunity to vet an issue if they need to. But like everyone, I've got a long to-do list every day, so I tend to want to get to the issue. What I have found is if I listen carefully and people know I'm tuned in, I can find a way to frame the issue and advance it more quickly than if they don't think I'm fully engaged.
But the other piece of that involves managing expectations, especially in terms of time. If the touchpoint is in the hall, I can always say, "I've only got two minutes now. How can I help you?" Then if we need to talk further, that person can drop me an email or we'll schedule a time to meet. But a lot of touchpoints can be adequately advanced quickly within a few minutes.
The reality is that you're dealing with people anyway, so you might as well be productive with them. Your alternative is to be dismissive or to avoid them. There's no evidence that that's a good way of becoming effective in the workplace. Besides, the fact is that in a touchpoint, you are typically dealing with people at a point when they actually want to talk with you. And, as we know, that doesn't happen every day, so we might as well make the most of it.
GMJ: Do you consider the idea of touchpoints a leadership model?
Conant: Not really. A leadership model can improve the effectiveness of the touchpoint, but no model that we've uncovered has ever felt perfect to everyone. Ultimately, people have to create their own way of walking in the world, but we think you have to work at that -- it doesn't just magically happen. What we suggest is to familiarize yourself with the leadership models that are out there. Do your homework, find a model that makes sense to you, and then make it your own.
Leadership does take work. And it should. If you aspire to be a leader, you ought to treat leadership as a craft, you ought to become a student of it, and you ought to work at it. And if you're not willing to work at it, well, you get what you give. I would assert that highly effective leaders are made more than they're born. Every leader I know who's been highly effective has worked hard at it, and they've been students of it. The more you're a student of leadership, the more you figure out what works for you and the more effective you're going to be.
This post originally appeared on The Gallup Management Journal.
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